Analysis: How your $26b in super became the world's best gravy train

$26 billion a year. That’s around how much is taken collectively from our superannuation funds each year.

That money goes to banks, life insurance companies, fund managers, superannuation trustees, actuaries, in advertising and myriad other suppliers.

The question the Hayne Royal Commission might hope to answer in the next two weeks of hearings – starting today: are Australians getting good value for that $26 billion?

Ross Greenwood says Australians pay about $26 billion a year in superannuation, but what is being done with that money? Picture: 9NEWS (AAP)

By way of comparison, the Federal Government spends around $28 billion a year on defence, and about $30 billion on education.

The $26 billion is my rough calculation - worked out as 1 percent in fees for the $2.6 trillion in Aussie super.

But it’s easy to understand that with our compulsory superannuation system that strips 9.5 percent from every one of our pay-packets, and adds it to the superannuation pile, having a foot in this pot of money is one of the most lucrative in the world today.

Say you’re a fund manager looking after employees’ compulsory superannuation. Provided you perform well enough to hang onto the money, you’re guaranteed more and more cash each and every year through those compulsory payments.

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That increases the income you receive. As the pot of money performs and grows, so does your income through rising fees. It’s a great business to be in.

What the Royal Commission hopefully uncovers is the way fund managers behave to attain and maintain the mandates that give them this ever-increasing magic pudding of cash.

Also, the Royal Commission should look at the accountability superannuation fund directors to ensure the members’ money is looked after in the most efficient manner: no side deals, no back-handers.

The Royal Commission will look at how the vast sums of superannuation money are used. Picture: AAP (AAP)

The first responsibility of a superannuation trustee (director) is to always act in the best interest of the fund members.

The Royal Commission will also look at why some funds earn more than others. This will put pressure on the big banks, AMP and IOOF whose funds have underperformed compared with the industry funds over a prolonged period of time.\

But even those industry funds have to be accountable about how they spend their members’ money, and how they appoint directors to paid positions that are highly coveted.

The questions here will surround whether mergers between super funds (that would lead to lower fees and better performance for members) have been quashed by directors keen to hang onto their board positions, and fees.

What is becoming increasingly clear is that Australians pay too much for the administration and management of their superannuation, especially compared with people in other countries.

That’s why watching the stories unfold from the next two weeks of hearings – and the subsequent report of the Royal Commissioner – could have a dramatic impact on the shape of the superannuation industry (and those cosy, fat fees).

The Government clearly wants change, and more competition, in the sector. Already it has a draft report from the Productivity Commission addressing some of these issues. One of the biggest, I would suggest, is more onus and penalty on the directors of persistently underperforming superannuation funds.

Remember that first responsibility: always act in the best interests of the member. Sure if you were a director or manager of a badly underperforming fund, your first action (to comply with the law) would be to resign … and appoint someone who can manage the money for the best interest of the members.

Not too many have ever done that though … and that’s one reason super got wrapped up in this Royal Commission.